If a beneficiary receives or may need needs-tested government benefits—SSI, Medicaid, subsidized housing—an outright inheritance is a disaster, not a gift. These programs cap countable assets at roughly $2,000, so a lump sum disqualifies the recipient until it is spent down, often on the very care the benefits were paying for. A special needs trust (also called a supplemental needs trust) holds assets for the beneficiary’s benefit without the beneficiary owning or controlling them, preserving eligibility while funding everything the programs do not: therapy, education, travel, technology, a caregiver, a better quality of life. The trustee must have full discretion and the beneficiary must have no right to demand distributions—that is what keeps the assets uncountable.
The structure splits on whose money funds it:
Funded with someone else’s assets—typically a parent’s or grandparent’s—for the disabled person’s benefit. This is the one you build into your own estate plan. It carries no Medicaid payback: whatever remains at the beneficiary’s death passes to the remainder beneficiaries you choose. The cardinal rule of estate planning for a family with a disabled member is simple—never leave anything to that person outright or by beneficiary designation; route every share, including from relatives, into the third-party SNT.
Funded with the beneficiary’s own money—a personal-injury settlement, an inheritance received outright, or back benefits. Authorized under 42 U.S.C. §1396p(d)(4)(A), it requires the beneficiary to be under 65 when the trust is created and includes a mandatory Medicaid payback: at death, the state is reimbursed for benefits paid before anything passes to other heirs. A §1396p(d)(4)(C) pooled trust, managed by a nonprofit that pools many beneficiaries’ funds for investment, is the practical alternative for smaller sums or when no suitable individual trustee exists.
Pair the trust with an ABLE account ( IRC §529A), a tax-advantaged savings account for individuals whose disability began before age 46 (raised from 26 effective 2026). Contributions run to the annual gift-exclusion amount per year, growth is tax-free for qualifying disability expenses, and the first $100,000 is disregarded for SSI—so an ABLE account gives the beneficiary direct, dignified control over modest funds while the SNT holds the larger corpus. Finally, leave the trustee a non-binding letter of intent describing the beneficiary’s routines, preferences, medical history, and what a good life looks like for them; no statute captures that, and the next trustee will need it.